The Changing Dynamics of Leadership Development

In this article, we revisit a familiar theme, leadership development. We recycle this basic topic for two reasons. First, there is more urgency; according to a recent FMI survey, 35% of CEOs and senior leaders in construction companies will retire in the next five years. Second, many of the next-generation leaders will be younger than normal. Many will be millennials, because the Generation X cohort is so small. Consequently, the traditional leadership development methods of education and job experience, primarily time-based, are being accelerated, supplemented and radically changed. This topic is now a senior leadership team priority in all the leading construction companies.

Our FMI colleague, Jake Appleman, has written widely and well on the topic of continuity mindset which generates conversations about the company’s “envisioned future,” its strategy and the clarity about “strategic positions,” — those that will have the highest impact on the successful execution of that strategy. Some of these type positions may not exist today, or if they do, they may require additional or different skill sets in the future. So clarity about how the company will look and behave when these next-generation leaders take the reins is the real starting point for creating tailored leadership development programs.

Another key concept in structuring more tailored development plans for future leaders is “role competencies,” a bit more specific than “skill sets.” These competencies, executed well, produce the high-impact deliverables required from this strategic position. Many times, current incumbents of these senior positions grew into their roles as the company grew. So articulating the requisite competencies both for today and especially for tomorrow will take several focused discussions among the senior team members. This is not an easy task, by any means; few successful people can tell you what makes them so successful. But listing these competencies is an essential step in crafting an effective development program.

Once the company’s envisioned future, strategic positions and role competencies are clear, the high-potential employees can be assessed and evaluated for possible fit. Lots of assessment tools are available to support this critical exercise; they reduce time and increase effectiveness. And if every potential future leader is evaluated by the same criteria, a realistic leadership pipeline can be established, and custom-tailored development plans can be created.

Certainly, traditional development methods remain vitally important. Experience in a series of leadership roles, where the person’s actions and judgment can be observed and analyzed, is still the primary method. Does he or she exhibit the researched qualities of effective leaders as articulated by Jim Collins in “Good to Great”: personal humility and professional will. Does the individual stay anchored and is he/she persistent in getting results? Selective educational programs still work too, particularly those designed to give the person real, honest self-knowledge through assessment, feedback and experiential learning. Having leaders who know their own strengths and weaknesses and who live the company’s value-based culture is a threshold structural element for continuity and prosperity.

Two supplemental methods are increasingly employed, especially to accelerate the “seasoning” of the millennials. The first is to give them real-world exposures, where they shadow a senior executive in settings they will face in the future, perhaps with clients, with industry peers, with political leaders. They sit silently and debrief later. The second is to assign them a mentor, often not in their chain of command; the role of the mentor is more of career guide than a coach for a specific set of activities. The mentor is a sounding board, counselor and cheerleader. Companies employing this method thoughtfully give enthusiastic endorsements.

The clock is running on baby boomers exiting. At the same time, the industry is being changed by technology, more rapidly each year. Consequently, leadership development mandates real focused executive time and deep thinking. Facilitated meetings are often the most productive and objective. The continuity mindset and the integration of strategy with tailored leadership development are the hallmarks of leading construction companies in these days of volatility, uncertainty, confusion and ambiguity (VUCA).

Houston’s Monthly Metrics

While Harvey remains a popular topic of conversation, the numbers surrounding the devastation from Harvey continue to be revised downward. The latest revised numbers from Moody Analytics bring the number down to $65 billion, much less than originally reported. Unlike storms from the past, which brought wind damage and prolonged power outages, Harvey was a rain event, primarily affecting residences. Most businesses were down only a handful of days, minimizing their losses. The September employment numbers from the Texas Workforce Commission reflect this, with a 16,000-job loss across the city compared to the previous month. That number is expected to jump back up when the October numbers are released, as those businesses who were directly impacted by the storm get back on their feet, with 2017 ending with approximately 40,000 additional jobs.

Construction employment, however, has continued its downward descent. As shown in the chart, construction employment year over year peaked in December 2014, turning negative in mid-2016. This is, in part, due to the drop in oil prices, coupled with construction markets like office and multifamily having fallen from their previous highs. The Harvey-related repairs are viewed as a temporary blip by contractors we’ve spoken to, and many are expecting a flat 2018. Harvey’s restoration will create, however, a spike in materials cost, and the ever-increasing war for talent is expected to drive labor costs up as well.

City of Houston nonresidential permits continue to track approximately 20% less in dollar volume compared to this time a year ago, and, nationally, the American Institute of Architects (AIA) Architectural Billings Index dipped below 50 for the first time this year, landing at 49.1 (anything below 50 signifies contraction; anything above 50 signifies expansion). Both new project inquiries and new design contract indices both softened as well, albeit still well north of 50. The Purchasing Manager’s Index for Houston also remains below 50, at 48.6 in September, with engineering and construction firms reporting further contraction.

CBRE’s third quarter reports show both retail and light industrial remain tight, with low vacancy and limited supply, while the office market is showing some signs of life with leasing picking up speed. However, the sublease space remains around 18 million square feet, with many of these leases expiring next year; so this market still has a long road to recovery. The multifamily market got a temporary, and needed, boost in occupancy after Harvey, with roughly 18,000 units leased since the storm, according to Apartment Data Services (ADS). While concessions can still be found in select areas, for the most part, they have disappeared across the city. Of the 16,000 apartment units that ADS has verified have storm damage, only two apartment communities will likely be shut down permanently due to flood damage.

While the full impact of the storm and its subsequent recovery won’t be known for a few more months, the consensus of the top economists in our region is that Harvey’s damage was significantly less than initially reported and that the recovery will be temporary.